The JDNews. Are we facing an oil shock comparable to those of 1973 or 1979?
Jacques Percebois. There is one thing in common in all three cases: the shock is linked to a war. But there are three important differences. First, the price of crude has increased much less. In 1973, it had quadrupled; in 1979, by two. Today, at 100 dollars per barrel compared to 70 dollars before the crisis, the increase is around 50%. Second difference: in 1973 and 1979, OPEC had much more direct power over prices. Today, the price of crude is essentially set by the markets. Finally, we do not fundamentally have a problem with the availability of crude oil, but with the delivery of products resulting from its refining. It is above all a logistical crisis.
Can we bypass the Strait of Hormuz?
Saudi Arabia has a pipeline capable of transporting at best 7 million barrels per day. The United Arab Emirates also has one. But we are very far from replacing the 20 million barrels usually passing through Hormuz. Some countries can no longer export, notably Iraq, Kuwait and Qatar. We can look for more oil elsewhere: in Canada, Latin America, Brazil or Africa. But it takes time and production margins are not very high everywhere. The country with the greatest capacity to absorb the shock today is probably the United States.
Would a complete reopening of the Strait of Hormuz lower prices?
Since there is basically no shortage of crude oil globally, yes, certainly. For refined products, the return to normal could take longer, as some infrastructure has been damaged. Everything will depend on the actual state of the installations.
However, the damage seems to have been more significant on certain gas installations, notably LNG in Qatar, than on oil refining. This is also why the shock on gas is even more spectacular than that observed on oil: European gas prices have approximately doubled. For oil, even if some refineries in the Middle East are experiencing difficulties, part of the crude could be refined elsewhere once maritime flows resume.
Could gas ultimately pose a greater risk than oil as winter approaches?
Yes, and for two reasons. The first is that European gas stocks are not as full as they should be. We delayed certain purchases in the hope of a drop in prices which did not come. If the winter is harsh, the situation could become tense. In France, consumers heating with gas would obviously be the first to be affected. But the second problem is perhaps even more important: gas plays a role in shaping the price of electricity.
Why, when France mainly produces its electricity with nuclear power?
Because we belong to a European electricity market interconnected. In the wholesale market, the last plant needed to satisfy demand sets the price. However, particularly in winter, this marginal power plant is often a gas power plant. When gas becomes very expensive, this is transmitted to the wholesale price of electricity. We saw it spectacularly in 2022, and again this summer. When some nuclear power plants had to reduce their activity due to temperature or water levels, gas power plants were in great demand.
Should refineries be rebuilt?
I don’t think so. A refinery is extremely expensive to build and must operate for several decades to pay for itself. It would, moreover, be extremely difficult to implement in France given the local opposition that such a project would provoke. Above all, we cannot show the objective of gradually phasing out fossil fuels and, at the same time, investing massively in new refineries planned to operate for thirty or forty years.
“I do not believe in the scenario of a generalized global shortage”
I am personally skeptical about the possibility of a complete exit from fossils by 2050, but the general direction towards a reduction in their consumption is indisputable. It is therefore more rational to continue to import certain refined products from modern facilities abroad while possibly modernizing our existing refineries.
Should we fear fuel shortages in the coming weeks?
For the raw material, I am relatively reassured. There is enough oil in the world to avoid a global shortage. For certain refined products, and in particular diesel, the situation is more delicate. It would become even more so if the United States decided to limit its diesel exports in order to contain its own domestic prices, since Europe now obtains its supplies largely from them. I do not believe in the scenario of a generalized global shortage. On the other hand, temporary and local shortages are perfectly possible.
